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The Rise of Big Business |
| The late nineteenth century saw the rise of "big business" in
important areas of economic activity. ("Big" is never defined precisely,
but the quantitative term is popularly used to connote something important.) Big
business firms were institutions that used management to control economic activity.
Big business firms broke themselves into different functions, or "departments,"
and used managers to coordinate the work of departments, and "middle managers"
to coordinate work among departments. |
| Railroads were the first "big businesses" in the United States. After
railroad companies began to operate on tracks that stretched for fifty and more miles,
their owners soon realized that they had to divide responsibilities among different
managers, with coordination of the various functions of the company--from soliciting
business, to operating trains, to maintaining facilities, to financing everything.
By the 1850s railroad executives were perfecting systems of managerial control over
their ever more complex firms. |
After the railroads pioneered the formation of "big business," big businesses
appeared in manufacturing and distribution.
Big city department stores were a form of "big business." They combined
many different retail operations in one organization, and placed them together in one
building. By 1912 department stores were principal features of the downtown
districts of every city.
Still other big businesses, mail order firms such as Sears, Roebuck, were by 1912
serving rural areas and small towns.
Thus when Americans shopped in 1912, they were likely to encounter a "big
business." In their stores, moreover, they were likely to find products
manufactured by "big businesses."
The "big business" form of organization spread rapidly in manufacturing
industries after about 1870.
In some lines of manufacturing, there were advantages to have a single organization
control raw materials, transportation, fabrication, and distribution. When he sold
his steel company in 1901, for example, Andrew Carnegie was the most efficient--and the
wealthiest--steel maker in the world. Carnegie steel had control over sources of
coal, coke, and iron ore. Carnegie steel exercised control over ships and railroads
that brought raw materials to its mills in the Pittsburgh district. Carnegie
insisted on his mill remaining the most advanced of their day. Not only did Carnegie
Steel manufacture steel, the company also produced finished products like railroad rails
and bridge girders. All of these operations were in a single managerial
organization. Managers controlled the flow of materials. Carnegie Steel was so
efficient that it could undercut all of its competitors and still make large profits.
Meatpacking was another industry that witnessed the rise and perfection of "big
business" forms. After 1870, several Chicago meatpackers built huge, complex
organizations for purchasing animals, butchering them, and distributing meat to markets
all across the nation. Their companies used all of the byproducts of the animals
they slaughtered. Skins went into leather goods, hoofs into glue, bones into
fertilizer, and fat into soap. One wag commented that the only part of the hog the Chicago
packers did not use and sell was the squeal!
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By the end of the nineteenth century, Standard Oil, led by John D. Rockefeller,
dominated the refining and
distribution of petroleum products in the United States, and extended its reach well
beyond the nation's borders. |
| When an entrepreneur like Carnegie was successful in building an efficient organization
to control manufacturing processes, he drove competitors out of business. A steel
maker either had to compete by mimicking Carnegie's managerial techniques, or go into a
niche, or specialized, market that the big steel companies did not
enter. In the case of
meatpacking, by 1900 thousands of local butchers found themselves squeezed, because they
were less efficient than the Chicago packers. Small shopkeepers sometimes faced ruin
from large department store competitors. These businesses following older, more
traditional practices sometimes fueled popular sentiment to "bust" the trusts. |
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